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In and Out of Crisis: The Global Financial Meltdown and Left Alternatives

In and Out of Crisis: The Global Financial Meltdown and Left Alternatives

by Greg Albo

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In this groundbreaking study of the financial meltdown, renowned radical political economists lay bare the roots of the crisis in the inner logic of capitalism itself. Objective and detailed, this account provocatively challenges the call for a return to a largely mythical golden age of economic regulation as a check on finance capital. In addition, it deftly


In this groundbreaking study of the financial meltdown, renowned radical political economists lay bare the roots of the crisis in the inner logic of capitalism itself. Objective and detailed, this account provocatively challenges the call for a return to a largely mythical golden age of economic regulation as a check on finance capital. In addition, it deftly illuminates how the era of neoliberal free markets has been, in practice, under-girded by state intervention on a massive scale. Arguing for genuinely transformative alternatives to capitalism, and discussing how to build the collective capacity to realize these goals, this record is a critique of the crisis and an indispensable springboard for a renewed political left.

Editorial Reviews

In These Times
The most useful book to come out of the current crisis. I hope it's used to its fullest potential.
From the Publisher

"Leo Panitch has stood out in recent years as one of the socialist intellectuals most fully engaged with political questions, analyzing the problems faced by left-wing parties, trade unions, and other social movements with great clarity."  —Irish Left Review

"Greg Albo, Sam Gindin, and Leo Panitch provide a perceptive, and persuasive, analysis of the origins of the crisis, arguing that the Left must go beyond the demand for re-regulation, which, they assert, will not solve the economic or environmental crisis, and must instead demand public control of the banks and the financial sector, and of the uses to which finance is put. This is an important book that should be read widely, especially by those hoping to revitalize the Left."  —Barbara Epstein, professor, UC Santa Cruz

"[Leo Panitch is] a wonderful writer who bridges the disjuncture between theory and political praxis."  —John C. Berg, government professor, Suffolk University

"Panitch’s work is consistently characterized by intelligence, rigor, and commitment."  —David Abraham, law professor, University of Miami

"The most useful book to come out of the current crisis. I hope it's used to its fullest potential."  —In These Times

"This brilliant work deserves a wide audience although its theoretical depth often makes it far from an easy read. Starting from the paradox that the financial meltdown has cost the ruling elites their credibility even while the North American Left has remained largely marginal, the authors proceed to challenge a number of widely held misconceptions and then sketch out a strategy for the rebirth of a radical movement." —The Labor Studies Journal

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In and Out of Crisis

The Global Financial Meltdown and Left Alternatives

By Greg Albo, Sam Gindin, Leo Panitch

PM Press

Copyright © 2010 PM Press
All rights reserved.
ISBN: 978-1-60486-347-5



Even the briefest of tallies of the economic crisis causes one to stare in disbelief at the casualties as the wreckage is registered. It amounted to the worst recession in the core advanced capitalist countries since the Great Depression, involving an overall decline in world output, with over 15 million people — or 10 percent of the labor force — officially unemployed in the United States at the beginning of 2010. Following 1.3 million home foreclosures in 2007 in the U.S., there were 2.3 million more in 2008, and the numbers continued to rise all the way through to 2010. Apart from the massive bailouts of the banks, the crisis was punctuated by the collapse the $65 billion Ponzi scheme, the largest in history, run by Bernard L. Madoff, the former head of the NASDAQ stock exchange; the takeover by the U.S. government of AIG, the biggest insurance company in the world; and the largest filing ever for Chapter 11 bankruptcy protection by General Motors in the summer of 2009. The Obama Administration's $787 billion emergency economic stabilization package was the most colossal stimulus measure in history. The U.S. budget deficit that same year, at over 12 percent of GDP, was not only the highest since World War II, but is expected to remain at this historic level for years to come.

Given how central the American economy is to global capitalism, the financial crisis that erupted in the U.S. housing market in 2007 spread around the world with lightning speed. The ensuing "Great Recession" sent one economy after another crashing down. The satirical broadsheet The Onion captured this perverse example of the imperial relationship between the U.S. and the rest of the world with a headline in November 2007: "Bush Proud the U.S. Can Cause Markets around the World to Collapse." Even the surging economies of East Asia, notably China, could not escape the economic storm brewed in the U.S. financial system. The depth and global scope of the downturn left states with little choice initially but to introduce massive public expenditures, not only to save the banks but to try to stimulate the economy. Working families, experiencing the frightening erosion of their effective savings — their pensions and home values — cut back on consumption in order to rebuild some future security. Private investors, seeing few opportunities and reacting with caution and uncertainty toward the future, were no longer investing in anything except safe government bonds.

At least in the so-called efficient markets theory guiding financial regulators, none of this was supposed to occur. Three decades of policies oriented to enhancing markets, freer trade, and "disciplining" workers and unions was meant not only to bring prosperity to all, but also greater economic stability. Each of the financial panics — the Savings and Loans crisis of the 1980s, the Long Term Capital Management and Asian financial crisis of the late 1990s, the dot-com meltdown — that have paralleled the evolution of these policies were always considered exceptional events and unlikely to be repeated. But none of these raised the levels of fears and doubts about the merits of capitalism from within the citadels of global finance.

In the midst of the banking turmoil of 2008, Wall Street mavens expressed alarm that the "best of all possible worlds" for financiers had suddenly gone deeply wrong. Leading bankers at Morgan Stanley, Goldman Sachs and others began to openly worry that a second Great Depression loomed. The Financial Times, now the paper of record for financial and political elites across the globe, took the doubts to the point of running a series of essays on the future of capitalism. The articles concluded, not surprisingly, that capitalism does indeed have a future. But they questioned the policies of financial liberalization that the Financial Times had been trumpeting for the last three decades, and even whether a private banking system was now more costly to capitalism than it was worth.

The Washington overseers of financial markets were equally suffering from policy angst. Former Federal Reserve Chairman Alan Greenspan, the leading free market tribune for bank deregulation in Washington for two decades, speaking before the House Oversight Committee conceded that:

[T]hose of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief ... To exist you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is 'yes, I have found a flaw.' I don't know how significant or permanent it is. But I have been very distressed by that fact ... A flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

From his perch at the Federal Reserve, Chairman Ben Bernanke, who was de facto in charge of world efforts to cauterize the financial bleeding from becoming a cataclysmic world slump, defended the state takeover of insurance giant AIG, claiming "its failure could have triggered a 1930s-style global financial and economic meltdown, with catastrophic implications for production, incomes, and jobs."

But almost as soon as the serious questioning of capitalism started receiving mainstream media attention, the financial storm eased. As 2009 unfolded, signs of recovery appeared after the unprecedented blast of liquidity into the economy from public loans to the financial sector, the fiscal stimulus and a monetary policy that locked in near-zero interest. In the core capitalist countries of North America, Western Europe, and Japan, the spread of bank collapses began to abate. Indeed, Bank of America and Citigroup announced plans to pay back billions of the emergency bailout loans they had received from the government at the height of the financial panic in 2008. In addition, they committed themselves to purchasing warrants held by the government to re-consolidate private equity control of their firms. Money flowed back into equity markets, and global stock exchanges recovered half of the value lost during the crisis.

Is a U.S.-Centered Neoliberal Global Capitalism Over?

It quickly became a common-sense observation among liberal and Left commentators — from the New York Times to The Nation to Monthly Review — that the financial crisis in itself spelled the end of neoliberalism and the pivotal role of the U.S. in the world economy. To single out just one among innumerable such assessments as the crisis unfolded, the well-known journalist Paul Mason boldly put it this way:

Global capitalism, on the precipice of collapse, has been rescued by the state. The alternative was oblivion. ... we are at the start of an un-American century and a system-wide rethink about the deep priorities of the capitalist system. ... Basically, neoliberalism is over: as an ideology, as an economic model. The task of working out what comes after is urgent. Those who want to impose social justice and sustainability have a once-in-a-century chance.

Before all the turmoil, capitalism had been on an incredible run — politically and culturally as well as economically — since the crisis of stagnation and inflation the 1970s. The resolution of that crisis in the 1980s required, as economists put it at the time, "reducing expectations" of the kind nurtured by the trade union militancy and welfare state gains of the 1960s, and putting a stop to the profitability crisis this had created amidst increased global competition. This was accomplished via the defeats suffered by trade unionism and working class parties at the hands of what might properly be called capitalist militancy, not only in North America but around the world. The shift in the balance of class forces (which would also come to mean a setback for social movements as a whole) was further encouraged by dramatic technological change, massive industrial restructuring alongside labor market flexibility and the over all market discipline provided by so-called international competitiveness. The intensification of market relations within countries was also accompanied by their spatial expansion to Eastern Europe, China, India, and many other regions. The incorporation of these new regions into the capitalist world market combined an array of new social relations involving massive proletarianization amidst "a world of slums."

That deepening and spread of market relations and the social discipline that goes with them brought with it an enormous increase in economic inequality, permanent working class insecurity and the subsumption of democratic possibilities to profitable accumulation. In the advanced capitalist core, the bulk of the population was now further integrated into and disciplined by market relations through the private pension funds that mobilized workers' savings on the one hand, and through the mortgage and credit markets that loaned them the money to sustain high levels of consumer spending on the other. At the centre of this were the private banking institutions that, after their collapse in the Great Depression, had been nurtured back to health in the postwar decades and then unleashed in the explosion of global financial innovation that has defined the neoliberal era.

A central question raised by the financial crisis that began in the summer of 2007 was whether capitalism's capacity to integrate the mass of people through their incorporation in financial markets has run out of steam. It certainly seemed so for many working class Americans, particularly African-Americans and the many millions of Hispanic migrant workers. A wider devaluation has also hit working class assets through a general decline in housing prices and of the stock and bonds in which workers' retirement savings are invested. It will be many years before American workers will be able to dig themselves out of the social and debt crises they find themselves plunged into. But we know well from the political experiences of the last three decades that the identification of the socio-economic processes of exploitation and growing inequalities is one thing. It is quite another to draw the conclusion that neoliberalism is over. The political conditions that kept neoliberal policies in play for so long have not been exhausted or undone by the crisis.

Many analysts on the Left have claimed that the crisis proves the U.S. empire is on the decline. But this ignores the continuing centrality of the American state in global capitalism. The crisis reconfirmed the world's dependence on the American state and financial system as capital everywhere initially ran to the safe haven of the U.S. Treasury bond. No other state has deep enough financial markets or the sufficient confidence of international capital to be able to replace the U.S. in this respect. And the resolution of this international crisis has rested fundamentally on the actions of the American state in leading a more or less coordinated response. As the Chinese government has said (not surprisingly) it desperately wants guarantees from the U.S. that it won't default on its debt. The Chinese would very much like an IMF-sponsored international reserve currency that wasn't the dollar. But they're saying all this because they are so utterly dependent on holding U.S. Treasury bills for their own monetary stability in a primarily export-oriented economy. This reveals the extent to which the imperial relationships that built today's global capitalism have persisted through the crisis.

To be sure, U.S. power is confronted by a series of very difficult problems. Indeed trying to integrate the leading states of the Global South that are members of the G20 — such as China, India, Brazil, and South Africa — into its informal empire may prove to be even more intractable than what the old empires faced with their colonies. But neither Europe (with its presumably more "civilized" capitalism), nor even China (it used to be Japan that was the favorite example) are challenging the American empire. The crisis is not just a U.S. crisis but a crisis of all the capitalist states embedded in the contradictions of a financialized globalization. They are all scrambling to find a way, under the aegis of the American state's umbrella, to manage this crisis. What gets in the way of thinking clearly about Left alternatives today is that people tend to look for somewhere else that's better, somewhere else that's stronger, somewhere else that's autonomous of the American empire. This is a diversion from thinking about what really needs to be done by way of creating the space for the alternatives we need, above all within the heart of the empire.

The theme of U.S. economic decline has in fact held sway as the primary discourse of the broad progressive movement in the U.S. for some time (a variation of a wider theme in socialist theory of capitalism in terminal stagnation and decline). The American defeat in Vietnam, the economic turmoil of the 1970s, and the end of the dollar-based Bretton Woods international monetary system all seemed to indicate that the limits of American capitalism and power had been reached. The neoliberal policies adopted since the 1980s has further raised the spectre of American economic decline as witnessed in faltering economic growth, low productivity advance, "impatient" capital markets, shift from creditor to debtor status, and languishing competitive capacity taking the form of structural current account deficits. A phalanx of texts from the Left, varying widely in analysis and specific political stances, has sustained this theme across the neoliberal era. The inevitable conclusion drawn from them was that the financial crisis proved that only a mass of credit had concealed the long economic decline of American capitalism.

A number of corollary arguments of these texts have, more or less, been intertwined with the theme of a vicious spiral of financialization and U.S. decline. One is that the financial crisis demonstrates the limits of U.S. state capacity to manage economic instability in the interests of the American ruling class as a whole. This inability, in turn, sharpens divisions in the U.S. power bloc with splits thus beginning to surface between financial and industrial capital. Finally, as U.S. decline intensifies from the predatory encumbrances of financialization, a further shift in the relative balance of power can be expected to lead rival states to openly contest U.S. leadership and hegemony: indeed, key East Asian and European states are already crucial to the U.S. meeting its external financing requirements. And rival power centers — even if they are still capitalist — will provide the political room in the interstate system for a diversity of development models to prevail.

Such analyses of U.S. weakness have led to a schizophrenic political agenda for the North American Left trying to navigate the politics of economic decline and respond to the immediacy of the financial crisis. On the one hand, the organizational tasks of the Left are often defined in terms of taking advantage of divisions among the capitalist classes and melding a progressive "producer alliance" between workers and industrialists against finance to reestablish good jobs, regulation, and the pre-eminence of the U.S. economy. The Democratic Party is usually seen as the obvious organizational vehicle in which such a program could be struck, despite its own linkages with Wall Street. On the other hand, with U.S. capitalism purportedly in decay, it is presumed that the organizational template for effective political action is already in place, so that the North American Left needs only to deepen the existing lines of political resistance to ensure a continuing weakening of the American capitalist class and state.


Excerpted from In and Out of Crisis by Greg Albo, Sam Gindin, Leo Panitch. Copyright © 2010 PM Press. Excerpted by permission of PM Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Meet the Author

Greg Albo and Leo Panitch are coeditors of the Socialist Register and professors of political economy at York University in Toronto. Sam Gindin is the former research director of the Canadian Autoworkers Unions and a professor of political economy at York University. They live in Toronto.

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